TIDMJSG
RNS Number : 6341Z
Johnson Service Group PLC
04 September 2018
4 September 2018
AIM: JSG
Johnson Service Group PLC
('JSG' or 'the Group')
Interim Results for the Six Months ended 30 June 2018
and Acquisition of South West Laundry Ltd
"Another consistently strong performance"
HIGHLIGHTS
Continuing Operations H1 2018 H1 2017 % increase FY 2017
---------------------------- ---------- ---------- ------------- ----------
Adjusted results(1)
Revenue GBP152.2m GBP138.0m 10.3% GBP290.9m
Adjusted operating profit GBP19.9m GBP18.6m 7.0% GBP43.3m
Adjusted profit before GBP18.2m GBP16.8m 8.3% GBP39.7m
taxation
Adjusted diluted EPS 4.0p 3.7p 8.1% 8.7p
Dividend 1.0p 0.9p 11.1% 2.8p
Net debt GBP91.2m GBP90.0m - GBP91.3m
Statutory results
Operating profit GBP15.7m GBP14.7m 6.8% GBP34.8m
Profit before taxation GBP14.0m GBP12.9m 8.5% GBP31.2m
Diluted EPS 3.1p 2.8p 10.7% 6.9p
-- Strong financial performance:
- reflects both strong organic growth of 7.2%(2) together with
the benefits of recent acquisitions
- underlying margin in line with H1 2017
-- Interim dividend increased by 11.1% to 1.0 pence per share
(June 2017: 0.9 pence)
-- Significant capital investment in the period has increased
production capacity at selected sites to support the demand from
strong organic growth
-- Acquisition of HORECA linen business, South West Laundry Ltd,
completed on 31 August 2018
- extending coverage to South West England
- new well equipped laundry with spare capacity for growth
-- Full year results are expected to be slightly ahead of
current market expectations
Notes
1 Excluding amortisation of intangible assets (excluding
software amortisation) and exceptional items (see note 5).
2 Excluding the full benefit of acquisitions completed in 2017
and the one off benefit of some GBP1.1 million of revenue for work
processed in 2017 on behalf of a privately owned laundry whose
plant was out of commission.
Chris Sander, Chief Executive Officer of Johnson Service Group,
commented:
"We are delighted to report another consistently strong
performance across the Group. Our strategy of driving the quality
of growth organically by investing capital in our operations,
coupled with selective acquisitions, is delivering encouraging
results.
Recent organic growth and margin performance gives us confidence
in the outlook for the second half of 2018. As a result, we expect
results for the full year to be slightly ahead of current market
expectations."
SELL-SIDE ANALYST MEETING
A presentation for sell-side analysts will be held today at
09:30 at Investec, 30 Gresham Street, London, EC2V 7QN. A copy of
the presentation will be available on the Company's website
(www.jsg.com) following the meeting.
ENQUIRIES
Johnson Service Group PLC
Chris Sander, CEO
Yvonne Monaghan, CFO
Tel: 020 3757 4992 (on the day)
Tel: 01928 704 600 (thereafter)
Investec Investment Banking (NOMAD) Camarco (Financial PR)
David Flin Ginny Pulbrook
Carlton Nelson Ben Woodford
Darren Vickers Tom Huddart
Tel: 020 7597 5970 Tel: 020 3757 4992
Note: Throughout this statement 'adjusted operating profit'
refers to continuing operating profit before amortisation of
intangible assets (excluding software amortisation) and exceptional
items. 'Adjusted profit before taxation' refers to adjusted
operating profit less total finance cost. 'Adjusted EBITDA', for
gearing purposes, refers to adjusted operating profit for the
relevant period plus the depreciation charge for property, plant
and equipment and software amortisation. 'Adjusted EPS' refers to
EPS calculated based on adjusted profit after taxation. The Board
considers that 'adjusted operating profit', 'adjusted profit before
taxation, 'adjusted EBITDA' and 'adjusted EPS', which all exclude
the effects of non-recurring items or non-operating events, provide
useful information for Shareholders on underlying trends and
performance.
FINANCIAL AND OPERATIONAL REVIEW
FINANCIAL REVIEW
Financial Results
Following very strong sales growth and continued high levels of
customer retention across all market sectors, organic growth
reached 7.2% in the first half of the year. This, combined with a
full six months trading from the acquisitions completed in 2017,
increased the Group's continuing revenue by 10.3% to GBP152.2
million (June 2017: GBP138.0 million). As a result of strong
operational controls corresponding adjusted operating profit
increased by 7.0% to GBP19.9 million (June 2017: GBP18.6
million).
Adjusted profit before taxation increased to GBP18.2 million
(June 2017: GBP16.8 million) after net finance costs of GBP1.7
million (June 2017: GBP1.8 million). The underlying tax rate was
19.5% (June 2017: 19.4%).
The statutory profit before tax after amortisation of intangible
assets (excluding software amortisation) of GBP4.2 million (June
2017: GBP3.9 million) increased by 8.5% to GBP14.0 million (June
2017: GBP12.9 million).
Continuing adjusted diluted earnings per share increased by 8.1%
to 4.0 pence (June 2017: 3.7 pence). Diluted earnings per share
from continuing operations, after amortisation of intangible assets
(excluding software amortisation), increased by 10.7% to 3.1 pence
(June 2017: 2.8 pence).
Dividend
Reflecting the Group's strong performance and prospects, the
Board is pleased to increase the interim dividend by 11.1% to 1.0
pence (June 2017: 0.9 pence). This is in line with our progressive
dividend policy, whilst also maintaining satisfactory dividend
cover.
The interim dividend will be paid on 2 November 2018 to those
Shareholders on the register of members at the close of business on
5 October 2018. The ex-dividend date is 4 October 2018.
Finances
Total net debt at 30 June 2018 was GBP91.2 million (December
2017: GBP91.3 million), slightly better than management
expectations, and reflected the strong trading performance in the
first half offset by significant investment in new rental stock
which was required to support organic growth. The Group's net debt
to adjusted EBITDA leverage ratio was 1.6x at the end of June
2018.
The Group renewed its bank facility in August 2018 and now has a
GBP150.0 million revolving credit facility (RCF) which is
considerably in excess of the anticipated level of borrowings, with
comfortable cover on all bank covenants for the foreseeable future.
The facility now comprises of a GBP135.0 million RCF, which expires
in August 2022, and a GBP15.0 million short term facility, which
expires in August 2019.
Interest cover, based on adjusted operating profit and excluding
notional pension interest, was 12.4 times (June 2017: 11.6 times),
with interest costs on our floating rate borrowings continuing to
benefit from the current low levels of LIBOR. Two hedging
arrangements, each for GBP15.0 million of borrowings, are in place
whereby LIBOR is replaced by a fixed rate of 1.4725% for the period
January 2016 to January 2019 and 1.665% for the period January 2016
to January 2020. Two further hedging arrangements, each for GBP10.0
million, were entered into at the end of June 2016 whereby LIBOR
was replaced by a fixed rate of 0.49% to June 2018 and 0.5525% to
June 2019.
Post-Employment Benefits
The recorded net deficit after tax for all post-employment
benefit obligations, calculated in accordance with IAS 19R, has
reduced to GBP5.0 million at June 2018 from GBP9.8 million at
December 2017. The reduction is due, in part, to the increase in
the discount rate and lower inflation rate assumed on liabilities
offset, to a lesser extent, by a lower return on scheme assets. We
now have a significant portion of scheme assets invested so as to
hedge against movements in liabilities, thereby reducing overall
scheme volatility.
The current agreement with the Trustee of the defined benefit
pension scheme requires deficit recovery payments of GBP1.9 million
in the year to December 2018, of which GBP0.9 million was
contributed during the first half. The payments are expected to
continue at this level until the results of the next triennial
actuarial valuation as at 30 September 2019 are finalised.
Acquisition of South West Laundry
After the period end, on 31 August 2018, we were pleased to add
another well established, HORECA business to the Group, through the
acquisition of the entire share capital of South West Laundry
Holdings Limited, together with its trading subsidiary South West
Laundry Ltd ('South West Laundry'). The consideration, payable in
cash on completion, was GBP15.5 million on a debt free, cash free
basis and subject to an adjustment for normalised working
capital.
As reported in the statutory accounts for the year ended 28
February 2018, South West Laundry generated revenue of GBP5.1
million and profit before taxation of GBP2.6 million. This included
a net exceptional credit item arising from an insurance claim of
GBP1.1 million. The results for South West Laundry are reported on
the basis of the accounting policies of the business and will be
aligned to the rest of the Group post completion. Reported net
assets at February 2018 were GBP4.1 million.
The company, based in Hayle in Cornwall, predominantly services
the hotel and restaurant market. It is located over 175 miles from
our nearest HORECA laundry and effectively opens up a new
geographical trading area for Johnson Service Group as we have very
little existing business in Devon and Cornwall. The laundry was
completely refurbished with new equipment following a fire in March
2017 and currently processes some 340,000 pieces of linen per week
and employs 100 staff.
We are also very pleased to announce that one of the Directors
currently managing the business, Wayne Retallack, will be joining
the Stalbridge management team and will continue to run South West
Laundry.
OPERATIONAL REVIEW
Our Businesses
The Group had another successful six months, delivering
continued strong organic growth and increased profit. The
acquisitions made in the second half of 2017 (Professional Linen
Services in Edinburgh and StarCounty Textiles in Wrexham) are
performing as expected. We continue to invest in many of our
laundry facilities to improve productivity and capacity and, given
current strong demands, there is further scope to continue this
plan.
Our Textile Rental business trades through a number of very well
recognised brands which service the UK's Workwear and Hotel
Restaurant and Catering ('HORECA') market sectors. The Group's
'Apparelmaster' brand predominantly provides workwear rental and
laundry services to corporates across all industry sectors,
'Stalbridge' and 'London Linen' provide premium linen services to
the restaurant, hospitality and corporate events market and
'Bourne', 'Afonwen' and 'PLS' provide high volume hotel linen
services. Our newly acquired South West Laundry brand will
complement our existing Stalbridge business.
As mentioned earlier in the year we are undertaking a review to
consolidate branding and extend national brand recognition. This is
proceeding to plan and we intend to begin implementation in the
near future. This will take up to three years to complete and the
modest cost will not have a material impact on Group results.
All of our brands experienced significant new business sales
which, combined with high levels of customer retention, resulted in
a strong first half performance, generating revenues of GBP152.2
million (June 2017: GBP138.0 million), an increase of 10.3%. This
increase includes an additional six months of trading from the
acquisitions completed in 2017. Our strong underlying organic
growth of some 7.2% included the benefit of price increases and
adjusts for the one-off benefit in 2017 of approximately GBP1.1
million of work processed on behalf of a privately owned laundry,
whose operations were disrupted by a fire.
Adjusted operating profit from our Textile Rental businesses
increased by GBP1.5 million to GBP22.2 million (June 2017: GBP20.7
million), representing an increase of 7.2%, with the operating
margin reducing slightly to 14.6% (June 2017: 15.0%). However,
excluding the impact of the high margin, one-off work in 2017
referred to above, the operating margin remained unchanged.
Workwear Division
Operating under the Apparelmaster brand, the Group's workwear
division provides workwear rental and laundry services to over
37,000 customers in the UK from small local businesses to the
largest companies covering food related and other industrial
sectors.
Trading for the first six months of 2018 was strong with revenue
increasing by 4.6% to GBP63.2 million (2017: GBP60.4 million).
Growth was driven by strong new sales, with some large customers
returning to the services provided by Apparelmaster, continued high
levels of retention, positive development within existing customers
and a price increase effective as from 1 April 2018. Growth levels
reflect our continued investment in sales and marketing activity
but also our focused levels of attention to existing customers,
which has once again delivered 95% retention of existing
revenues.
With the benefit of strong revenue growth and despite the higher
than expected fuel and energy costs the business continued to focus
on efficiency with adjusted operating profit increasing by 5.9% to
GBP10.8 million (2017: GBP10.2 million) and the margin improving to
17.1% (2017: 16.9%).
Our investment in plant and machinery continued during the
period with the installation of three modern, highly efficient
garment folding machines in the high care food unit at Hinckley,
which has increased folding capacity by 17.5%, and the commencement
of further work to increase garment production capacity at the high
care food unit in Letchworth by a further 35%.
The business continues to invest in the training and development
of its employees with the initiative of its own internal training
Academy and now 60 people are benefitting from enrolment on
apprenticeship schemes in addition to a nationwide customer service
development program. This will help to provide internal succession
in some of our technical and skilled areas. Uptake on our Academy
for management development remains strong and it is pleasing to see
the career progression of previous participants.
HORECA Division
Overall revenue within the HORECA division was very strong at
GBP89.0 million (2017: GBP77.6 million), an increase of 14.7%.
After adjusting for revenue from acquisitions completed in the
second half of 2017 and also excluding the GBP1.1 million of high
margin revenue in 2017 from processing work of a competitor in
distress, underlying revenue increased by 9.0%.
Corresponding adjusted operating profit increased to GBP11.4
million (2017: GBP10.5 million) an increase of 8.6%. The operating
margin was 12.8%, the same as the margin for the first half of 2017
when calculated to exclude the impact of the high margin work
referred to above.
Within our HORECA division the high volume hotel linen laundries
experienced increased volumes as new business sales were very
strong and ahead of our expectations, despite pricing pressures
across the market sector. Now operating with three consolidated
brands, Afonwen, Bourne and PLS, the business is recognised as a
national provider of quality services to the high volume hotel
linen market and as such a number of customers have awarded us
additional hotels from within their existing portfolio.
To ensure the high volume linen business can meet productivity
demands in the peak season we have completed some modest
investments at the laundries in Edinburgh, Chester and Birmingham
and, together with some further realignment of customers to improve
logistical efficiencies, have also re-balanced production output
requirements.
The high volume linen laundries won significant additional
business across the country, in particular, in the Midlands and
Southern England as the result of the sudden closure of a West
Midlands competitor laundry. Our size and scale allows us to have
the capability of reacting quickly to market conditions and to
secure a number of new contracts with the ability to complete new
linen installations very quickly. Given the continuing strong
demand for our services we are reviewing opportunities to open an
additional facility to complement our existing network.
Following the acquisition of StarCounty Textiles in Wrexham in
December 2017 some 170,000 pieces per week of high volume linen
work was transferred to Chester for processing with some 50,000
pieces per week of linen from smaller hotels and restaurants moving
into Wrexham. The operational changes were well organised and as a
result we are pleased to report that overall customer satisfaction
and retention levels remain at a very high standard.
The overall outlook for the high volume hotel linen laundries
remains positive with a healthy pipeline of new business together
with a very busy summer schedule.
Stalbridge has continued to grow with strong new sales in 2018
building on the full year effect of record new sales in 2017.
Stalbridge continue to heavily market their "no contract", flexible
and responsive service which attracts customers who are new to the
market and where service and quality are the primary drivers.
Several group customers have signed up to long term extensions of
their existing supply arrangements.
The acquisition of StarCounty has given additional capacity to
allow for this growth, and we have invested in machinery, buildings
and the working environment to ensure it meets the discerning
standards of a Stalbridge branded factory. There has been a
significant realignment of customer distribution between the
Stalbridge operating locations to streamline deliveries and
logistics, which was completed in the first half of 2018.
Improved operating efficiency has been achieved in the Dorset
factories with two replacement high speed ironer lines and a new
continuous batch washer supported by improved chemical and washing
technology being installed.
The 'MyStalbridge' portal allows customers to access their
account details, billing and stock usage data online and this is
proving popular for those customers who wish to manage their stock
levels, linen consumption and costs proactively.
A GBP3.3 million refurbishment and extension of Caterers Linen
laundry (previously a London Linen brand) in Southall will be
complete by the final quarter of 2018, and will be operated and
fully re-branded as Stalbridge, allowing for further consolidation
of the customer base. The Southall site is shared with two London
Linen laundries with whom Stalbridge continue to co-operate very
closely in the restaurant and catering marketplaces.
London Linen is now solely focused on restaurant customers,
mainly in the London area, although the national restaurant chains
are also supplied via our nationwide network of laundries,
providing consistency of service levels and key performance
criteria. Revenue increased during the first half as a result of
gaining new accounts including a significant contract win (for 92
sites) at the start of the year which has now been fully rolled
out.
We have experienced some limited pressures exerted in the
restaurant market to consolidate the amount of textile product
lines laundered as customers attempt to reduce costs without
affecting the services they provide to their own customers front of
house.
The GBP4.5 million capital investment programme which was
completed half way through 2017 continues to drive further
benefits, providing the capacity to facilitate the increased
revenue whilst at the same time generating efficiencies, which have
resulted in lower production labour costs per unit compared to
2017, helping to offset the impact of NLW increases. Investment has
continued in 2018 with the installation of a new high speed ironer
line inclusive of an electronic inspection system which has further
increased capacity, productivity, quality and consistency.
Three of our nine ironer lines now have electronic inspection
systems and these will continue to be installed to existing ironer
lines as it improves efficiency and the quality of the final
product dispatched to customers. Further project work is being
undertaken to determine ways to improve efficiency within the
dispatch process to ensure our high levels of customer service are
maintained in a cost effective manner.
Overall across our textile businesses we have experienced higher
textile stock spend as we have invested in stock to service the
increases in new business sales and this has marginally impacted on
depreciation. Costs have been well maintained across the businesses
despite the disproportionate increases in fuel and energy costs and
so far have been mitigated through the combined effect of pricing,
productivity improvements and the realignment of distribution
areas. Our margin has therefore been maintained during the
prolonged period of hot weather at times of record volumes of
pieces processed.
TECHNICAL INNOVATION
Work on the in-house development of new operating systems for
both the workwear and high volume hotel linen businesses is
progressing to plan and budget. This project, which incorporates
the use of Microsoft Dynamics, will further improve our operating
systems and customer engagement. The first phase of the system is
expected to be installed in the first half of 2019.
EMPLOYEES
The Group now employs some 5,500 people who have all contributed
to the performance of the business and to achieving our
market-leading customer service standards. We thank them for their
significant contribution to another tremendous first half
performance.
BOARD CHANGES
As announced on 5 December 2017, Peter Egan joined the Board as
Chief Operating Officer on 1 April 2018, ahead of assuming the role
of CEO on the retirement of Chris Sander, the current CEO, at the
end of 2018. In May 2018, Paul Moody announced his intention to
resign from the Board and subsequently left the Group on 3 August
2018. Bill Shannon, formerly the Senior Independent Non-Executive
Director, was appointed as Non-Executive Chairman from that date.
As announced on 24 August 2018, Chris Girling joined the Board as
an Independent Non-Executive Director and Audit Committee Chairman
with effect from 29 August 2018.
OUTLOOK
Our investment to date in additional production capacity has
enabled us to meet the demands produced by recent strong organic
growth. We will continue to invest in the business to support the
Board's confidence in the ongoing growth of the Group.
Our strategic vision to continue to grow our business through
organic growth supplemented by well planned acquisitions is on
track with the latest being South West Laundry in August 2018 in
the far South West of England. Whilst we have extended our services
over a large part of the UK there are still some geographical
regions of the country in which we are not represented as the
distances are beyond economic travel from our existing facilities.
We therefore believe there are still further opportunities for us
to extend our geographical reach through further acquisition when
the opportunities arise. We have recently increased our available
bank facilities to support this growth.
Our strong sales growth, high levels of customer retention and
productivity benefits from recent investments give us confidence in
the second half performance and, as a result, we expect results for
the full year to be slightly ahead of current market
expectations.
Responsibility Statement
The condensed consolidated interim financial statements comply
with the Disclosure Guidance and Transparency Rules ('DTR') of the
United Kingdom's Financial Conduct Authority in respect of the
requirement to produce a half-yearly financial report. The interim
report is the responsibility of, and has been approved by, the
Directors.
The Directors confirm that to the best of their knowledge:
-- this financial information has been prepared in accordance
with IAS 34, 'Interim Financial Reporting' as adopted by the
European Union;
-- this interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
-- this interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
The Directors of Johnson Service Group PLC are listed in the
Johnson Service Group PLC Annual Report for 2017. Since that date,
Peter Egan joined the Board on 1 April 2018 as Chief Operating
Officer, ahead of assuming the role of Chief Executive Officer at
the end of 2018, and Chris Girling joined the Board on 29 August
2018 as an Independent Non-Executive Director and Audit Committee
Chairman. Paul Moody stepped down as Non-Executive Chairman on 3
August 2018 and was replaced by Bill Shannon, formerly the Senior
Independent Non-Executive Director, from that date. Details of the
Directors are available on the Johnson Service Group PLC website:
www.jsg.com
By order of the Board
Chris Sander Yvonne Monaghan
Chief Executive Officer Chief Financial Officer
4 September 2018 4 September 2018
Forward Looking Statements
Certain statements in these condensed consolidated interim
financial statements constitute forward-looking statements. Any
statement in this document that is not a statement of historical
fact including, without limitation, those regarding the Company's
future expectations, operations, financial performance, financial
condition and business is a forward-looking statement. Such
forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties include, among other factors, changing economic,
financial, business or other market conditions. These and other
factors could adversely affect the outcome and financial effects of
the plans and events described in these condensed consolidated
interim financial statements. As a result you are cautioned not to
place reliance on such forward-looking statements. Nothing in this
document should be construed as a profit forecast.
Consolidated Income Statement
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017 GBPm
Note GBPm GBPm
Revenue from continuing operations 2 152.2 138.0 290.9
Operating profit 2 15.7 14.7 34.8
Operating profit before amortisation
of intangible
assets (excluding software amortisation)
and exceptional items 19.9 18.6 43.3
Amortisation of intangible assets (excluding
software amortisation) (4.2) (3.9) (8.0)
Exceptional items 3
- Costs in relation to business acquisition
activity - - (0.5)
Operating profit 2 15.7 14.7 34.8
Finance cost (1.6) (1.6) (3.2)
Notional pension interest (0.1) (0.2) (0.4)
------------------------------------------------ ------ --------- --------- ------------
Total finance cost (1.7) (1.8) (3.6)
Profit before taxation 14.0 12.9 31.2
Taxation charge* 4 (2.8) (2.5) (5.8)
------------------------------------------------ ------ --------- --------- ------------
Profit for the period from continuing
operations 11.2 10.4 25.4
Result / profit for the period from
discontinued operations - - 0.3
Profit for the period attributable
to equity holders 11.2 10.4 25.7
------------------------------------------------ ------ --------- --------- ------------
Earnings per share
Basic earnings per share 7
From continuing operations 3.1p 2.8p 6.9p
From discontinued operations - - 0.1p
From total operations 3.1p 2.8p 7.0p
------------------------------------------------ ------ --------- --------- ------------
Diluted earnings per share
From continuing operations 3.1p 2.8p 6.9p
From discontinued operations - - 0.1p
From total operations 3.1p 2.8p 7.0p
------------------------------------------------ ------ --------- --------- ------------
Adjusted basic earnings per share
From continuing operations 4.0p 3.7p 8.7p
From discontinued operations - - -
From total operations 4.0p 3.7p 8.7p
------------------------------------------------ ------ --------- --------- ------------
Adjusted diluted earnings per share
From continuing operations 4.0p 3.7p 8.7p
From discontinued operations - - -
From total operations 4.0p 3.7p 8.7p
------------------------------------------------ ------ --------- --------- ------------
The notes on pages 15 to 28 form an integral part of these
condensed consolidated interim financial statements.
* Including GBP0.8 million credit (June 2017: GBP0.7 million
credit; December 2017: GBP1.7 million credit) relating to
amortisation of intangible assets (excluding software amortisation)
and GBPnil (June 2017: GBPnil; December 2017: GBP0.1 million
credit) relating to exceptional items.
Consolidated Statement of Comprehensive Income
Half year
to Half year Year ended
30 June to 30 June 31 December
2018 2017 2017
Note GBPm GBPm GBPm
Profit for the period 11.2 10.4 25.7
---------------------------------------------------------------- -------- --------- ----------- ------------
Items that will not be subsequently reclassified
to profit or loss
Re-measurement and experience gains on
- post-employment benefit obligations 8 5.0 6.2 3.2
Taxation in respect of re-measurement
- and experience gains (0.9) (1.2) (0.6)
Change in deferred tax due to change
- in tax rate - - (0.1)
Items that may be subsequently reclassified
to profit or loss
Cash flow hedges (net - fair value gain
- of taxation) / (loss) 0.3 (0.2) 0.2
- transfers to administrative
expenses (0.2) - -
- transfers to finance
cost 0.2 0.2 0.4
--------------------------------- ------------------------------- ------ --------- ----------- ------------
Other comprehensive income for the period 4.4 5.0 3.1
----------------------------------------------------------------
Total comprehensive income for the period 15.6 15.4 28.8
---------------------------------------------------------------- -------- --------- ----------- ------------
Consolidated Statement of Changes in Shareholders' Equity
Capital
Share Share Merger Redemption Hedge Retained Total
Capital Premium Reserve Reserve Reserve Earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2017 36.5 15.0 1.6 0.6 (0.7) 94.1 147.1
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Profit for the period - - - - - 10.4 10.4
Other comprehensive income
for the period - - - - - 5.0 5.0
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Total comprehensive income
for the period - - - - - 15.4 15.4
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Share options (value
of employee services) - - - - - 0.3 0.3
Current tax on share
options - - - - -- 0.2 0.2
Issue of share capital
(net of costs) 0.1 0.2 - - - - 0.3
Purchase of shares by
EBT* - - - - - (0.1) (0.1)
Dividend paid - - - - - (6.2) (6.2)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Transactions with Shareholders
recognised directly in
Shareholders' equity 0.1 0.2 - - - (5.8) (5.5)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Balance at 30 June 2017 36.6 15.2 1.6 0.6 (0.7) 103.7 157.0
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Profit for the period - - - - - 15.3 15.3
Other comprehensive income
/ (loss) for the period - - - - 0.6 (2.5) (1.9)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Total comprehensive income
for the period - - - - 0.6 12.8 13.4
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Share options (value
of employee services) - - - - - 0.4 0.4
Purchase of shares by
EBT* - - - - - 0.1 0.1
Dividend paid - - - - - (3.3) (3.3)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Transactions with Shareholders
recognised directly in
Shareholders' equity - - - - - (2.8) (2.8)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Balance at 31 December
2017 36.6 15.2 1.6 0.6 (0.1) 113.7 167.6
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Change in accounting
standard (note 19) - - - - - 1.0 1.0
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Restated balance at 1
January 2018 36.6 15.2 1.6 0.6 (0.1) 114.7 168.6
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Profit for the period - - - - - 11.2 11.2
Other comprehensive income
for the period - - - - 0.3 4.1 4.4
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Total comprehensive income
for the period - - - - 0.3 15.3 15.6
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Share options (value
of employee services) - - - - - 0.4 0.4
Dividend paid - - - - - (7.0) (7.0)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Transactions with Shareholders
recognised directly in
Shareholders' equity - - - - - (6.6) (6.6)
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
Balance at 30 June 2018 36.6 15.2 1.6 0.6 0.2 123.4 177.6
-------------------------------- --------- --------- --------- ------------ --------- ---------- --------
* The Group has an Employee Benefit Trust (EBT), to administer
share plans and to acquire shares, using funds controlled by the
Group, to meet commitments to employee share schemes.
Consolidated Balance Sheet
As at As at As at
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Note
Non-current assets
Goodwill 120.4 115.6 120.3
Intangible assets 39.6 44.0 43.5
Property, plant and equipment 91.2 82.2 89.3
Textile rental items 54.3 45.0 50.0
Trade and other receivables 0.7 0.3 0.3
Derivative financial assets 0.2 - -
Deferred income tax assets 1.5 2.2 2.9
307.9 289.3 306.3
------------------------------------ ------ -------- -------- ------------
Current assets
Inventories 2.9 2.4 2.9
Trade and other receivables 55.0 46.5 47.2
Derivative financial assets 0.2 - 0.1
Cash and cash equivalents 6.0 6.5 5.3
64.1 55.4 55.5
------------------------------------ ------ -------- -------- ------------
Current liabilities
Trade and other payables 71.9 61.3 65.3
Current income tax liabilities 4.1 3.9 3.8
Borrowings 13.2 19.5 14.5
Derivative financial liabilities - 0.3 -
Provisions 1.7 2.2 2.2
90.9 87.2 85.8
------------------------------------ ------ -------- -------- ------------
Non-current liabilities
Post-employment benefit obligations 8 6.1 9.7 12.0
Deferred income tax liabilities 8.2 8.1 9.5
Trade and other payables 3.0 2.6 3.1
Borrowings 84.0 77.0 82.1
Derivative financial liabilities 0.2 0.5 0.2
Provisions 2.0 2.6 1.5
103.5 100.5 108.4
------------------------------------ ------ -------- -------- ------------
NET ASSETS 177.6 157.0 167.6
------------------------------------ ------ -------- -------- ------------
Capital and reserves attributable to
the Company's Shareholders
Share capital 10 36.6 36.6 36.6
Share premium 15.2 15.2 15.2
Merger reserve 1.6 1.6 1.6
Capital redemption reserve 0.6 0.6 0.6
Hedge reserve 0.2 (0.7) (0.1)
Retained earnings 123.4 103.7 113.7
------------------------------------ ------ -------- -------- ------------
Total equity 177.6 157.0 167.6
------------------------------------ ------ -------- -------- ------------
The notes on pages 15 to 28 form an integral part of these
condensed consolidated interim financial statements. The condensed
consolidated interim financial statements on pages 11 to 28 were
approved by the Board of Directors on 4 September 2018 and signed
on its behalf by:
Yvonne Monaghan
Chief Financial Officer
Consolidated Statement of Cash Flows
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017 GBPm
Note GBPm GBPm
Cash flows from operating activities
Profit for the period 11.2 10.4 25.7
Adjustments for:
Taxation
charge - continuing operations 4 2.8 2.5 5.8
- discontinued operations - - (0.3)
Total finance
cost - continuing operations 1.7 1.8 3.6
Depreciation of tangible fixed assets 26.4 23.3 48.8
Amortisation of intangible fixed
assets 4.3 4.0 8.2
Profit on sale of tangible fixed
assets - - (0.1)
Increase in inventories - (0.2) (0.7)
Increase in trade and other receivables (7.0) (2.3) (2.1)
Increase in trade and other payables 3.2 1.6 1.9
Costs in relation to business acquisition
activity - - 0.5
Deficit recovery payments in respect
of post-employment benefit obligations (0.9) (2.4) (3.4)
Share-based payments 0.4 0.3 0.8
Post-employment benefit obligations (0.1) (0.1) (0.1)
Decrease in provisions - - (1.0)
------------------------------------------------ ------ --------- --------- ------------
Cash generated from operations 42.0 38.9 87.6
Interest paid (1.4) (1.5) (2.8)
Taxation paid (3.6) (3.9) (6.9)
------------------------------------------------ ------ --------- --------- ------------
Net cash generated from operating
activities 37.0 33.5 77.9
------------------------------------------------ ------ --------- --------- ------------
Cash flows from investing activities
Acquisition of business (net of cash
and cash equivalents acquired) 11 - - (9.2)
Proceeds from sale of business (net
of cash disposed) 12 - 6.0 7.1
Purchase of property, plant and equipment (6.9) (7.0) (16.5)
Proceeds from sale of property, plant
and equipment - 0.1 0.2
Purchase of intangible assets (0.3) - -
Purchase of textile rental items (23.8) (19.4) (43.1)
Proceeds received in respect of special
charges 1.2 1.2 2.1
Net cash used in investing activities (29.8) (19.1) (59.4)
------------------------------------------------ ------ --------- --------- ------------
Cash flows from financing activities
Proceeds from borrowings 31.0 54.0 82.0
Repayments of borrowings (29.0) (62.0) (88.2)
Capital element of finance leases (2.3) (2.5) (5.3)
Purchase of own shares by EBT - (0.1) -
Net proceeds from issue of Ordinary
shares - 0.3 0.3
Dividend paid (7.0) (6.2) (9.5)
Net cash used in financing activities (7.3) (16.5) (20.7)
------------------------------------------------ ------ --------- --------- ------------
Net decrease in cash and cash equivalents (0.1) (2.1) (2.2)
Cash and cash equivalents at beginning
of period (3.7) (1.5) (1.5)
------------------------------------------------ ------ --------- --------- ------------
Cash and cash equivalents at end
of period 14 (3.8) (3.6) (3.7)
------------------------------------------------ ------ --------- --------- ------------
Cash and cash equivalents comprise:
Cash 6.0 6.5 5.3
Overdraft (9.8) (10.1) (9.0)
Cash and cash equivalents at end
of the period (3.8) (3.6) (3.7)
------------------------------------------------ ------ --------- --------- ------------
The notes on pages 15 to 28 form an integral part of these
condensed consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial
Statements
Johnson Service Group PLC (the 'Company') and its subsidiaries
(together 'the Group') provide textile rental and related services
across the UK.
The Company is incorporated and domiciled in the UK, its
registered number is 523335 and the address of its registered
office is Johnson House, Abbots Park, Monks Way, Preston Brook,
Cheshire, WA7 3GH. The Company is a public limited company and has
its primary listing on the AIM division of the London Stock
Exchange.
The condensed consolidated interim financial statements were
authorised for issue by the Board on 4 September 2018.
1 BASIS OF PREPARATION
These condensed consolidated interim financial statements of the
Group are for the half year ended 30 June 2018. They have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Conduct Authority and with IAS 34, 'Interim
Financial Reporting', as adopted by the European Union.
The condensed consolidated interim financial statements have not
been reviewed nor audited, nor do they comprise statutory accounts
for the purpose of Section 434 of the Companies Act 2006, and do
not include all of the information or disclosures required in the
annual financial statements and should therefore be read in
conjunction with the Group's 2017 consolidated financial
statements, which have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
Financial information for the year ended 31 December 2017
included herein is derived from the statutory accounts for that
year, which have been filed with the Registrar of Companies. The
auditors' report on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain a statement
under Section 498 of the Companies Act 2006.
Other than as described within note 2, financial information for
the half year ended 30 June 2017 included herein is derived from
the condensed consolidated interim financial statements for that
period.
Going Concern
The Group currently meets its day-to-day working capital
requirements through committed bank facilities which, as at 30 June
2018, ran to April 2020 but which now, following the refinancing of
that facility on 9 August 2018, runs to at least 9 August 2022.
Current economic conditions continue to create uncertainty,
particularly over the level of demand for the Group's services. The
Group's latest forecasts and projections, taking account of
reasonably possible changes in trading performance, show that there
is not a substantial doubt that the Group should be able to operate
within the level of its current facilities for a period of at least
12 months from the date of these condensed consolidated interim
financial statements.
As a consequence, and having reassessed the principal risks and
uncertainties, the Directors considered it appropriate to adopt the
going concern basis of accounting in preparing the condensed
consolidated interim financial information.
2 SEGMENT ANALYSIS
Segment information is presented in respect of the Group's
operating segments, which are based on the Group's management and
internal reporting structure as at 30 June 2018. These segments are
the same as those included within the 2017 Annual Report and
Accounts. The segmental analysis for the half year ended 30 June
2017 has been restated to reflect the changes made within the 2017
Annual Report and Accounts with the introduction of two new
reporting segments, Workwear and Hotels, Restaurant and Catering
(HORECA).
The chief operating decision-maker has been identified as the
Board of Directors (the Board). The Board reviews the Group's
internal reporting in order to assess performance and allocate
resources. The Board determines the operating segments based on
these reports and on the internal reporting structure. For
reporting purposes, in accordance with IFRS 8, the Board aggregates
operating segments with similar economic characteristics and
conditions into reporting segments, which form the basis of the
reporting in the Annual Report and Accounts.
The Board assesses the performance of the reporting segments
based on a measure of operating profit, both including and
excluding the effects of non-recurring items from the reporting
segments, such as restructuring costs and impairments when the
impairment is the result of an isolated, non-recurring or
non-operating event. Interest income and expenditure are not
included in the result for each reporting segment that is reviewed
by the Board. Segment results include items directly attributable
to a segment as well as those that can be allocated on a reasonable
basis, for example rental income received by Johnson Group
Properties PLC is credited back, where appropriate, to the paying
company for the purpose of segmental reporting. Other than as
described above, there have been no changes in measurement methods
used compared to the prior year.
Other information provided to the Board is measured in a manner
consistent with that in the financial statements. Segment assets
exclude deferred income tax assets, current income tax assets,
derivative financial assets and cash and cash equivalents, all of
which are managed on a central basis. Segment liabilities include
non-bank borrowings but exclude deferred income tax liabilities,
current income tax liabilities, bank borrowings, post-employment
benefit obligations and derivative financial liabilities, all of
which are managed on a central basis. These balances are part of
the reconciliation to total assets and liabilities.
2 SEGMENT ANALYSIS (continued)
The reporting segment results for the half year ended 30 June
2018, together with comparative figures, are as follows:
All Other
Half year to 30 June 2018 Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm
REVENUE
Continuing 63.2 89.0 - 152.2
Total Revenue 152.2
----------------------------------------------------- ------------- --------- ------- ---------- ----------
RESULT
OPERATING PROFIT / (LOSS) BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING SOFTWARE
AMORTISATION) 10.8 11.4 (2.3) 19.9
Amortisation of intangible assets
(excluding software amortisation) (0.2) (4.0) - (4.2)
OPERATING PROFIT / (LOSS) 10.6 7.4 (2.3) 15.7
Total finance cost (1.7)
Profit before taxation 14.0
Taxation (2.8)
----------------------------------------------------- ------------- --------- ------- ---------- ----------
Profit for the period attributable
to equity holders 11.2
Discontinued All Other
Operations Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets - 121.1 241.9 1.1 364.1
Unallocated assets:
Derivative financial assets 0.4
Deferred income tax assets 1.5
Cash and cash equivalents 6.0
----------------------------------------------------- ------------- --------- ------- ---------- ----------
Total assets 372.0
----------------------------------------------------- ------------- --------- ------- ---------- ----------
Segment liabilities (3.6) (29.5) (49.0) (4.2) (86.3)
Unallocated liabilities: Bank
borrowings (89.5)
Current income tax
liabilities (4.1)
Deferred income
tax liabilities (8.2)
Derivative
financial
liabilities (0.2)
Post-employment
benefit
obligations (6.1)
------------------------------------------------------ ------------- --------- ------- ---------- --------
Total liabilities (194.4)
----------------------------------------------------- ------------- --------- ------- ---------- ----------
OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment - 2.2 6.2 - 8.4
- Textile rental items - 10.6 14.9 - 25.5
- Software - 0.4 - - 0.4
Depreciation and amortisation
expense
- Property, plant and equipment - 2.3 4.2 - 6.5
- Textile rental items - 8.0 11.9 - 19.9
- Software - - 0.1 - 0.1
- Customer contracts - 0.2 4.0 - 4.2
2 SEGMENT ANALYSIS (continued)
Half year to 30 June 2017 All Other
(restated) Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm
REVENUE
Continuing 60.4 77.6 - 138.0
Total Revenue 138.0
----------------------------------------------------- ------------- ---------------- ------- ---------- ------------
RESULT
OPERATING PROFIT / (LOSS) BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING SOFTWARE
AMORTISATION) 10.2 10.5 (2.1) 18.6
Amortisation of intangible assets (excluding
software amortisation) (0.2) (3.7) - (3.9)
OPERATING PROFIT / (LOSS) 10.0 6.8 (2.1) 14.7
Total finance cost (1.8)
Profit before taxation 12.9
Taxation (2.5)
----------------------------------------------------- ------------- ---------------- ------- ---------- ------------
Profit for the period attributable
to equity holders 10.4
Discontinued All Other
Operations Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets 1.0 117.1 216.6 1.3 336.0
Unallocated assets:
Deferred income tax assets 2.2
Cash and cash equivalents 6.5
----------------------------------------------------- ------------- ---------------- ------- ---------- ------------
Total assets 344.7
----------------------------------------------------- ------------- ---------------- ------- ---------- ------------
Segment liabilities (4.1) (30.5) (42.4) (3.6) (80.6)
Unallocated liabilities: Bank
borrowings (84.6)
Current income tax
liabilities (3.9)
Deferred income
tax liabilities (8.1)
Derivative financial
liabilities (0.8)
Post-employment
benefit
obligations (9.7)
------------------------------------------------------ ------------- ---------------- ------- ---------- ----------
Total liabilities (187.7)
----------------------------------------------------- ------------- ---------------- ------- ---------- ------------
OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment - 1.4 5.1 - 6.5
- Textile rental items - 8.9 10.7 - 19.6
Depreciation and amortisation
expense
- Property, plant and equipment - 2.3 3.6 - 5.9
- Textile rental items - 7.8 9.6 - 17.4
- Software - - 0.1 - 0.1
- Customer contracts - 0.2 3.7 - 3.9
2 SEGMENT ANALYSIS (continued)
All
Other
Year ended 31 December 2017 Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm
REVENUE
Continuing 122.4 168.5 - 290.9
Total Revenue 290.9
----------------------------------------------------- ----- ------------- --------- ------- ---------- --------------
RESULT
OPERATING PROFIT / (LOSS) BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING SOFTWARE
AMORTISATION)
AND EXCEPTIONAL ITEMS 21.1 26.8 (4.6) 43.3
Amortisation of intangible assets (excluding
software amortisation) (0.5) (7.5) - (8.0)
Exceptional items:
- Costs in relation to business
acquisition activity - (0.5) - (0.5)
OPERATING PROFIT / (LOSS) 20.6 18.8 (4.6) 34.8
Finance cost (3.6)
Profit before taxation 31.2
Taxation (5.8)
------------------------------------------------------------ ------------- --------- ------- ---------- --------------
Profit for the period from continuing
operations 25.4
Profit for the period from discontinued
operations 0.3
------------------------------------------------------------ ------------- --------- ------- ---------- --------------
Profit for the period attributable
to equity holders 25.7
------------------------------------------------------------ ------------- --------- ------- ---------- --------------
All
Discontinued Other
Operations Workwear HORECA Segments Total
GBPm GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets - 116.8 235.5 1.2 353.5
Unallocated assets:
Deferred income tax assets 2.9
Derivative financial assets 0.1
Cash and cash equivalents 5.3
---------------------------------------------------- ------ ------------- --------- ------- ---------- --------------
Total assets 361.8
---------------------------------------------------- ------ ------------- --------- ------- ---------- --------------
Segment liabilities (3.7) (29.4) (45.1) (3.9) (82.1)
Unallocated liabilities: Deferred
income tax liabilities (9.5)
Bank borrowings (86.6)
Current income tax
liabilities (3.8)
Derivative
financial
liabilities (0.2)
Post-employment benefit
obligations (12.0)
------------------------------------------------------------ ------------- --------- ------- ---------- --------------
Total liabilities (194.2)
---------------------------------------------------- ------ ------------- --------- ------- ---------- --------------
OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment - 4.7 10.6 - 15.3
- Textile rental items - 17.8 25.9 - 43.7
Depreciation and amortisation
expense
- Property, plant and equipment - 4.6 7.9 - 12.5
- Textile rental items - 15.8 20.5 - 36.3
- Software - - 0.2 - 0.2
- Customer contracts - 0.5 7.5 - 8.0
3 EXCEPTIONAL ITEMS
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
Continuing operations GBPm GBPm GBPm
Costs in relation to business
acquisition activity - - (0.5)
Total exceptional items - - (0.5)
------------------------------- ------------ ----------- -------------
Current year exceptional items
There are no exceptional items in the half year to 30 June
2018.
Prior year exceptional items
Costs in relation to business acquisition activity
During the prior year, professional fees of GBP0.3 million were
paid relating to the acquisitions of Clayfull Limited, which trades
as PLS, and StarCounty Textile Services Limited. In addition, costs
of GBP0.2 million were incurred as part of the integration of
recent acquisitions.
4 TAXATION
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
Continuing operations 2018 2017 GBPm
GBPm GBPm
Current tax
UK corporation tax charge for the
period 3.8 3.6 7.8
Adjustment in relation to previous
periods - - (0.9)
--------------------------------------- ---------- ---------- -------------
Current tax charge for the period 3.8 3.6 6.9
Deferred tax
Origination and reversal of temporary
differences (1.0) (1.1) (1.4)
Changes in statutory tax rate - - (0.3)
Adjustment in relation to previous
years - - 0.6
Deferred tax credit for the period (1.0) (1.1) (1.1)
--------------------------------------- ---------- ---------- -------------
Total charge for taxation included
in the income statement 2.8 2.5 5.8
--------------------------------------- ---------- ---------- -------------
Taxation in relation to amortisation of intangible assets
(excluding software amortisation) has reduced the charge for
taxation on continuing operations in the half year to 30 June 2018
by GBP0.8 million (June 2017: GBP0.7 million reduction in the
charge; December 2017: GBP1.7 million reduction in the charge).
Taxation in relation to exceptional items in the half year to 30
June 2018 relating to continuing operations is GBPnil (June 2017:
GBPnil; December 2017: GBP0.1 million reduction in the charge).
During the half year to 30 June 2018, a GBP1.0 million charge
relating to deferred taxation (June 2017: GBP1.2 million charge;
December 2017: GBP0.8 million charge) has been recognised in other
comprehensive income.
During the half year to 30 June 2018, there has been no impact
relating to current taxation (June 2017: GBP0.2 million credit;
December 2017: GBP0.2 million credit) recognised directly in
Shareholders' equity.
Reconciliation of effective tax rate
Taxation on non-exceptional items for the half year to 30 June
2018 is calculated based on the estimated average annual effective
tax rate (excluding prior year items) of 19.5% (June 2017: 19.4%;
December 2017: 19.8%). This compares to the weighted average tax
rate expected to be enacted or substantively enacted at the balance
sheet date of 19.00% (June 2017: 19.25%; December 2017: 19.25%).
Taxation on exceptional items is calculated based on the actual tax
charge or credit for each specific item.
Differences between the estimated average annual effective tax
rate and statutory rate include, but are not limited to, the effect
of non-deductible expenses and the effect of tax losses utilised.
The adjustment for under or over provisions in previous years is
recognised when the amounts are agreed.
Deferred income taxes at the balance sheet date have been
measured at the tax rate expected to be applicable at the date the
deferred income tax assets and liabilities are realised. Management
has performed an assessment, for all material deferred income tax
assets and liabilities, to determine the period over which the
deferred income tax assets and liabilities are forecast to be
realised, which has resulted in an average deferred income tax rate
of 18.0% being used to measure all deferred tax balances as at 30
June 2018 (June 2017: 18.5%; December 2017: 18.0%).
5 ADJUSTED PROFIT BEFORE AND AFTER TAXATION
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017 GBPm
Continuing operations GBPm GBPm
Profit before taxation 14.0 12.9 31.2
Amortisation of intangible assets (excluding
software amortisation) 4.2 3.9 8.0
Costs in relation to business acquisition
activity - - 0.5
Adjusted profit before taxation 18.2 16.8 39.7
Taxation on adjusted profit (3.6) (3.2) (7.6)
---------------------------------------------- ---------- ---------- -------------
Adjusted profit after taxation 14.6 13.6 32.1
---------------------------------------------- ---------- ---------- -------------
6 DIVIDS
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
Dividend per share (pence)
2018 Interim dividend proposed 1.0 - -
2017 Interim dividend proposed and paid - 0.9 0.9
2017 Final dividend proposed and paid - - 1.9
----------------------------------------- ---------- ---------- -------------
1.0 0.9 2.8
----------------------------------------- ---------- ---------- -------------
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
Shareholders' funds committed (GBPm)
2018 Interim dividend proposed 3.7 - -
2017 Interim dividend proposed and paid - 3.3 3.3
2017 Final dividend proposed and paid - - 7.0
On 11 May 2018 a final dividend of 1.9 pence per share in
respect of 2017 was paid to Shareholders, utilising GBP7.0 million
of Shareholders' funds.
The Directors are proposing an interim dividend in respect of
the year ended 31 December 2018 of 1.0 pence which will reduce
Shareholders' funds by GBP3.7 million. The dividend will be paid on
2 November 2018 to Shareholders on the register of members at the
close of business on 5 October 2018. The trustee of the EBT has
waived the entitlement to receive dividends on the Ordinary shares
held by the trust.
In accordance with IAS 10 there is no payable recognised at 30
June 2018 in respect of this proposed dividend.
7 EARNINGS PER SHARE
Half year Half Year
to year to ended
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Profit for the period from continuing operations
attributable to Shareholders 11.2 10.4 25.4
Profit for the period from discontinued operations
attributable to Shareholders - - 0.3
Amortisation of intangible assets from continuing
operations (net of taxation) 3.4 3.2 6.3
Exceptional items from continuing operations
(net of taxation) - - 0.4
Adjusted profit attributable to Shareholders
relating to continuing activities 14.6 13.6 32.1
Adjusted profit attributable to Shareholders
relating to discontinued activities - - 0.3
----------------------------------------------------- ------------ ------------ --------------
Adjusted profit attributable to Shareholders 14.6 13.6 32.4
----------------------------------------------------- ------------ ------------ --------------
Number Number Number
of shares of shares of shares
Weighted average number of Ordinary shares 366,483,899 365,853,070 366,167,837
Potentially dilutive options* 3,366,690 2,718,599 2,798,518
----------------------------------------------------- ------------ ------------ --------------
Fully diluted number of Ordinary shares 369,850,589 368,571,669 368,966,355
----------------------------------------------------- ------------ ------------ --------------
Pence Pence Pence
Basic earnings per share per share per share per share
----------------------------------------------------- ------------ ------------ --------------
From continuing operations 3.1p 2.8p 6.9p
From discontinued operations - - 0.1p
----------------------------------------------------- ------------ ------------ --------------
From continuing and discontinued operations 3.1p 2.8p 7.0p
Adjustment for amortisation of intangibles
assets (continuing operations) 0.9p 0.9p 1.7p
Adjustment for exceptional items (continuing
operations) - - 0.1p
Adjustment for exceptional items (discontinued
operations) - - (0.1p)
Adjusted basic earnings per share (continuing
operations) 4.0p 3.7p 8.7p
Adjusted basic earnings per share (discontinued
operations) - - -
----------------------------------------------------- ------------ ------------ --------------
Adjusted basic earnings per share from continuing
and discontinued operations 4.0p 3.7p 8.7p
----------------------------------------------------- ------------ ------------ --------------
Diluted earnings per share
----------------------------------------------------- ------------ ------------ --------------
From continuing operations 3.1p 2.8p 6.9p
From discontinued operations - - 0.1p
----------------------------------------------------- ------------ ------------ --------------
From continuing and discontinued operations 3.1p 2.8p 7.0p
----------------------------------------------------- ------------ ------------ --------------
Adjustment for amortisation of intangibles
assets (continuing operations) 0.9p 0.9p 1.7p
Adjustment for exceptional items (continuing
operations) - - 0.1p
Adjustment for exceptional items (discontinued
operations) - - (0.1p)
Adjusted diluted earnings per share (continuing
operations) 4.0p 3.7p 8.7p
Adjusted diluted earnings per share (discontinued
operations) - - -
----------------------------------------------------- ------------ ------------ --------------
Adjusted diluted earnings per share from continuing
and discontinued operations 4.0p 3.7p 8.7p
----------------------------------------------------- ------------ ------------ --------------
* Includes outstanding share options granted to employees.
Basic earnings per share is calculated using the weighted
average number of Ordinary shares in issue during the period,
excluding those held by the Employee Benefit Trust, based on the
profit for the period attributable to Shareholders.
Adjusted earnings per share figures are given to exclude the
effects of amortisation of intangible assets (excluding software
amortisation) and exceptional items, all net of taxation, and are
considered to show the underlying performance of the Group.
For diluted earnings per share, the weighted average number of
Ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive Ordinary shares. The Company has potentially
dilutive Ordinary shares arising from share options granted to
employees. Options are dilutive under the SAYE scheme, where the
exercise price together with the future IFRS2 charge of the option
is less than the average market price of the Company's Ordinary
shares during the year. Options under the LTIP schemes, as defined
by IFRS 2, are contingently issuable shares and are therefore only
included within the calculation of diluted EPS if the performance
conditions, as set out in the Board report on remuneration in the
2017 Annual report and Accounts, are satisfied.
Potentially dilutive Ordinary shares are dilutive at the point,
from a continuing operations level, when their conversion to
Ordinary shares would decrease earnings per share or increase loss
per share. For all periods, potentially dilutive Ordinary shares
have been treated as dilutive, as their inclusion in the diluted
earnings per share calculation decreases earnings per share from
continuing operations.
There were no events occurring after the balance sheet date that
would have changed significantly the number of Ordinary shares or
potentially dilutive Ordinary shares outstanding at the balance
sheet date if those transactions had occurred before the end of the
reporting period.
8 RETIREMENT BENEFIT OBLIGATIONS
The Group has applied the requirements of IAS 19R, 'Employee
Benefits' to its employee pension schemes and post-employment
healthcare benefits.
In the half year to 30 June 2018 deficit recovery payments of
GBP0.9 million were paid by the Group to the defined benefit scheme
(June 2017: GBP0.9 million; December 2017: GBP1.9 million). A one
off, deficit recovery payment of GBP1.5 million was made in April
2017.
Following discussions with the Group's appointed actuary a
re-measurement gain of GBP5.0 million has been recognised in the
half year to 30 June 2018. This is principally as a result of asset
returns over the period for this scheme having been lower than the
assumed interest credit at the year end, resulting in an actuarial
loss of GBP4.4 million, offset, to a greater extent, by the
increase in the assumed discount rate from 2.5% per annum to 2.8%
per annum combined with a decrease in the CPI and RPI price
inflation assumptions by 0.05% per annum resulting in an actuarial
gain of GBP9.4 million.
The post-employment benefit obligation and associated deferred
income tax asset thereon is shown below:
As at As at As at
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Post-employment benefit obligation (6.1) (9.7) (12.0)
Deferred income tax asset thereon 1.1 1.8 2.2
------------------------------------ --------- --------- -------------
(5.0) (7.9) (9.8)
------------------------------------ --------- --------- -------------
The reconciliation of the opening gross post-employment benefit
obligation to the closing gross post-employment benefit obligation
is shown below:
As at As at As at
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Opening post-employment benefit obligation (12.0) (18.2) (18.2)
Notional interest (0.1) (0.2) (0.4)
Employer contributions 0.9 2.4 3.4
Re-measurement gains 5.0 6.2 3.2
Utilisation of healthcare provision 0.1 0.1 -
-------------------------------------------- --------- --------- -------------
Closing post-employment benefit obligation (6.1) (9.7) (12.0)
-------------------------------------------- --------- --------- -------------
9 CAPITAL EXPITURE AND COMMITMENTS
CAPITAL EXPITURE
In the half year to 30 June 2018 the Group acquired property,
plant and equipment for a cost of GBP8.4 million (June 2017: GBP6.5
million; December 2017: GBP15.3 million), not including property,
plant and equipment acquired through business combinations.
Intangible assets with a cost of GBP0.4 million were acquired
during the half year to 30 June 2018 (June 2017: GBPnil; December
2017: GBPnil), not including intangible assets acquired through
business combinations. In addition, textile rental items with a
cost of GBP25.5 million were acquired during the period (June 2017:
GBP19.6 million; December 2017: GBP43.7 million), not including
textile rental items acquired through business combinations.
Offsetting this, property, plant and equipment with a net book
value of GBPnil was disposed of during the half year to 30 June
2018 (June 2017: GBPnil; December 2017: GBP0.1 million). In
addition, amounts received in respect of textile rental special
charges were GBP1.2 million (June 2017: GBP1.2 million; December
2017: GBP2.1 million).
CAPITAL COMMITMENTS
Orders placed for future capital expenditure contracted but not
provided for in the financial statements are shown below:
As at As at As at
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Software 2.2 - -
Property, plant and equipment 3.9 2.9 1.4
------------------------------- --------- --------- -------------
10 SHARE CAPITAL
Issued share capital is as follows:
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
Share capital at the start of the period 36.6 36.5 36.5
New shares issued - 0.1 0.1
------------------------------------------ ---------- ---------- -------------
Share capital at the end of the period 36.6 36.6 36.6
------------------------------------------ ---------- ---------- -------------
In the half year to 30 June 2018, 3,443 SAYE scheme options were
exercised with a total nominal value of GBP344 (June 2017:
GBP33,359; December 2017: GBP36,636). In 2017, LTIP options were
exercised with a total nominal value of GBP102,500. Proceeds in
excess of the nominal value were credited to Share Premium.
11 BUSINESS COMBINATIONS
There have been no business combinations in the half year to 30
June 2018. On 31 August 2018, the Group acquired the entire issued
share capital of South West Laundry Holdings Limited, together with
its trading subsidiary South West Laundry Ltd. Further details are
provided in note 18.
During 2017, the Group acquired 100% of the share capital of
Clayfull Limited, which trades as PLS, and 100% of the share
capital of StarCounty Textile Services Limited ('Star'). During the
half year to 30 June 2018, the initial fair value of the textile
rental items acquired in Star was reduced by GBP0.1 million, with a
corresponding increase in goodwill. Full details of acquisitions in
2017 are provided in the 2017 Annual Report and Accounts.
12 DISPOSALS AND DISCONTINUED OPERATIONS
There have been no business disposals in the half year to 30
June 2018.
On 4 January 2017 the Group disposed of its Drycleaning business
for a consideration of GBP8.25 million on a debt free, cash free
basis. Full details of the disposal are provided in the 2017 Annual
Report and Accounts.
The total result / profit included in the Consolidated Income
Statement relating to discontinued operations is as follows:
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
Taxation credit - - 0.3
-------------------------------------------- ----------- ----------- -------------------
Retained result / profit from discontinued
operations - - 0.3
-------------------------------------------- ----------- ----------- -------------------
Cash flows relating to discontinued operations are as
follows:
Half year Half year Year ended
to to 31 December
30 June 30 June 2017
2018 2017
GBPm GBPm GBPm
Proceeds from disposal - 7.3 8.3
Payment of costs relating to the disposal - (0.5) (0.4)
Cash disposed of - (0.8) (0.8)
Net proceeds from disposal - 6.0 7.1
Net cash used in operating activities (0.1) (0.2) (0.3)
Net cash flow relating to discontinued
operations (0.1) 5.8 6.8
------------------------------------------- ---------- ---------- -------------
13 BORROWINGS
As at 30 June 2018, borrowings were secured and drawn down under
a committed facility dated 21 February 2014, as amended and
restated on 24 April 2015 and as further amended and restated on 22
April 2016, comprising a GBP120.0 million rolling credit facility
(including an overdraft) which ran to 24 April 2020.
On 9 August 2018, the facility was further amended and restated
to now comprise a GBP135.0 million rolling credit facility
(including an overdraft) which runs to 9 August 2022. In addition,
a GBP15.0 million short term facility, expiring on 9 August 2019,
has also been agreed.
Under the rolling credit facility, individual tranches are drawn
down, in sterling, for periods of up to six months at LIBOR rates
of interest prevailing at the time of drawdown, plus the applicable
margin. The margin varies between 1.25% and 2.25%. The margin
payable on the short term facility is fixed at 1.25% plus
LIBOR.
As at 30 June 2018, GBP40.0 million of borrowings were subject
to hedging arrangements which had the effect of replacing LIBOR
with fixed rates as follows:
-- for GBP15.0 million of borrowings, LIBOR is replaced with
1.4725% from 8 January 2016 to 8 January 2019;
-- for GBP15.0 million of borrowings, LIBOR is replaced with
1.665% from 8 January 2016 to 8 January 2020; and
-- for GBP10.0 million of borrowings, LIBOR is replaced with
0.5525% from 30 June 2016 to 30 June 2019.
Borrowings are stated net of unamortised issue costs of GBP0.3
million (30 June 2017: GBP0.5 million; 31 December 2017: GBP0.4
million).
14 ANALYSIS OF NET DEBT
Net debt is calculated as total borrowings net of unamortised
bank facility fees, less cash and cash equivalents. Non-cash
changes represent the effects of the recognition and subsequent
amortisation of fees relating to the bank facility, changing
maturity profiles, debt acquired as part of an acquisition and new
finance leases entered into during the period.
At 1 At 30
January Cash Non-cash June
June 2018 2018 Flow Changes 2018
GBPm GBPm GBPm GBPm
Debt due within one year (1.7) 1.0 - (0.7)
Debt due after more than one
year (75.9) (3.0) (0.1) (79.0)
Finance leases (10.0) 2.3 - (7.7)
--------------------------------- --------- ------ ----------- -------
Total debt and lease financing (87.6) 0.3 (0.1) (87.4)
Cash and cash equivalents (3.7) (0.1) - (3.8)
--------------------------------- --------- ------ ----------- -------
Net debt (91.3) 0.2 (0.1) (91.2)
--------------------------------- --------- ------ ----------- -------
At 1 At 30
January Cash Non-cash June
June 2017 2017 Flow Changes 2017
GBPm GBPm GBPm GBPm
Debt due within one year (9.8) 5.0 0.1 (4.7)
Debt due after more than one
year (72.5) 3.0 (0.3) (69.8)
Finance leases (14.4) 2.5 - (11.9)
--------------------------------- --------- -------- ----------- ----------
Total debt and lease financing (96.7) 10.5 (0.2) (86.4)
Cash and cash equivalents (1.5) (2.1) - (3.6)
--------------------------------- --------- -------- ----------- ----------
Net debt (98.2) 8.4 (0.2) (90.0)
--------------------------------- --------- -------- ----------- ----------
At 1 At 31
January Cash Non-cash December
December 2017 2017 Flow Changes 2017
GBPm GBPm GBPm GBPm
Debt due within one year (9.8) 9.2 (1.1) (1.7)
Debt due after more than one
year (72.5) (3.0) (0.4) (75.9)
Finance leases (14.4) 5.3 (0.9) (10.0)
--------------------------------- --------- -------- ----------- ----------
Total debt and lease financing (96.7) 11.5 (2.4) (87.6)
Cash and cash equivalents (1.5) (2.2) - (3.7)
--------------------------------- -------- ----------- ----------
Net debt (98.2) 9.3 (2.4) (91.3)
--------------------------------- --------- -------- ----------- ----------
14 ANALYSIS OF NET DEBT (continued)
The cash and cash equivalents figures are comprised of the
following balance sheet amounts:
As at 30 As at As at 31
June 30 June December
2018 2017 2017
GBPm GBPm GBPm
Cash (Current assets) 6.0 6.5 5.3
Overdraft (Borrowings, Current liabilities) (9.8) (10.1) (9.0)
(3.8) (3.6) (3.7)
--------------------------------------------- --------- --------- ----------
Finance lease obligations are comprised of the following balance
sheet amounts:
As at 30 As at As at 31
June 30 June December
2018 2017 2017
GBPm GBPm GBPm
Amounts due within one year (Borrowings,
Current Liabilities) (2.7) (4.7) (3.8)
Amounts due after more than one year
(Borrowings, Non-Current Liabilities) (5.0) (7.2) (6.2)
(7.7) (11.9) (10.0)
------------------------------------------ --------- --------- ----------
15 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Half year Half Year ended
to year 31 December
30 June to 2017
2018 30 June
2017
GBPm GBPm GBPm
Decrease in cash in the period (0.1) (2.1) (2.2)
Decrease in debt and lease financing 0.3 10.5 11.5
--------------------------------------------- ---------- --------- ---------------------
Change in net debt resulting from cash
flows 0.2 8.4 9.3
Debt acquired through business acquisitions - - (2.1)
Movement in unamortised issue costs of
bank loans (0.1) (0.2) (0.3)
Movement in net debt during the period 0.1 8.2 6.9
Opening net debt (91.3) (98.2) (98.2)
--------------------------------------------- ---------- --------- ---------------------
Closing net debt (91.2) (90.0) (91.3)
--------------------------------------------- ---------- --------- ---------------------
16 RELATED PARTY TRANSACTIONS
Transactions during the year between the Company and its
subsidiaries, which are related parties, have been conducted on an
arm's length basis and eliminated on consolidation. Full details of
the Group's other related party relationships, transactions and
balances are given in the Group's financial statements for the year
ended 31 December 2017. There have been no material changes in
these relationships in the half year to 30 June 2018 or up to the
date of this Report.
17 CONTINGENT LIABILITIES
The Group operates from a number of sites across the UK. Some of
the sites have operated as laundry sites for many years and
historic environmental liabilities may exist. Such liabilities are
not expected to give rise to any significant loss.
The Group has granted its Bankers and Trustee of the Pension
Scheme (the 'Trustee') security over the assets of the Group. The
priority of security is as follows:
-- first ranking security for GBP28.0 million to the Trustee
ranking pari passu with up to GBP155.0 million of bank liabilities;
and
-- second ranking security for the balance of any remaining
liabilities to the Trustee ranking pari passu with any remaining
bank liabilities.
During the period of ownership of the Facilities Management
division the Company had given guarantees over the performance of
contracts entered into by the division. As part of the disposal of
the division the purchaser has agreed to pursue the release or
transfer of obligations under the Parent Company guarantees and
this is in process. The Sale and Purchase agreement contains an
indemnity from the purchaser to cover any loss in the event a claim
is made prior to release. In the period until release the purchaser
is to make a payment to the Company of GBP0.2 million per annum,
reduced pro rata as guarantees are released. Such liabilities are
not expected to give rise to any significant loss.
As a condition of the sale of the Facilities Management division
in August 2013, the Group has put in place indemnities, to the
purchaser, in relation to any future amounts payable in respect of
contingent consideration related to the Nickleby acquisition
completed in February 2012. As set out in the 2012 Annual Report
and Accounts the maximum amount payable under the terms of the
indemnity could be up to GBP5.0 million. The Directors believe the
risk of settlement at, or near, the maximum level to be remote.
18 EVENTS AFTER THE REPORTING PERIOD
On 31 August 2018, the Group acquired the entire issued share
capital of South West Laundry Holdings Limited, together with its
trading subsidiary South West Laundry Ltd ('South West Laundry'),
for a cash consideration of GBP15.5 million on a debt-free,
cash-free basis and subject to normalised working capital. South
West Laundry, based in Hayle in Cornwall, predominantly services
the hotel and restaurant market. Whilst expected to be immediately
earnings enhancing, the main focus of this acquisition is to
complement our existing Stalbridge business by improving
operational capacity and extending our geographical reach. As
reported in the statutory accounts for the year ended 28 February
2018, South West Laundry generated revenue of GBP5.1 million and
profit before taxation of GBP2.6 million. This included a net
exceptional credit item arising from an insurance claim of GBP1.1
million. Reported net assets at the same date were GBP4.1
million.
There have been no other events that require disclosure in
accordance with IAS10, 'Events after the balance sheet date'.
19 ACCOUNTING POLICIES
Except as described below, the condensed consolidated interim
financial statements have been prepared applying the accounting
policies, presentation and methods of computation applied by the
Group in the preparation of the published consolidated financial
statements for the year ended 31 December 2017.
(a) Taxation
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected total annual earnings
before exceptional items. Taxation on exceptional items is accrued
as the exceptional items are recognised. Prior year adjustments in
respect of taxation are recognised when it becomes probable that
such adjustment is needed.
(b) Seasonality of operations
Seasonality or cyclicality could affect all of the businesses to
varying extents, however, the Directors do not consider such
seasonality or cyclicality to be significant in the context of the
condensed consolidated interim financial statements.
(c) Standards and amendments to standards effective in 2018
IFRS 9, 'Financial Instruments'
As at 1 January 2018, the Group has assessed the requirements of
IFRS 9.
IFRS 9 introduces an 'expected loss' model for recognising
impairment of financial assets held at amortised cost. This is
different from IAS 39, which had an incurred loss model where
provisions were recognised only when there was objective evidence
of impairment. This change of approach requires the Group to
consider forward-looking information to calculate expected credit
losses regardless of whether there has been an impairment trigger.
The impact of this change resulted in a small but immaterial
increase to the level of impairment recognised, as such no
adjustment has been made to the opening balance of retained
earnings as at 1 January 2018.
In accordance with IFRS 9's transition provisions for hedge
accounting, the Group has applied the IFRS 9 hedge accounting
requirements prospectively from the date of initial application on
1 January 2018. The Group's qualifying cash flow hedging
relationships in place as at 1 January 2018 also qualified for
hedge accounting in accordance with IFRS 9 and were therefore
regarded as continuing hedging relationships. The Group has
interest rate swaps in place to minimise the exposure of the Group
to interest rate risk arising from its borrowings and forward
contracts to minimise price risk associated with diesel costs
incurred. No rebalancing of any of the hedging relationships was
necessary on 1 January 2018. As the critical terms of the hedging
instruments match those of their corresponding hedged items, all
hedging relationships continue to be effective under IFRS 9's
effectiveness assessment requirements. The Group has also not
designated any hedging relationships under IFRS 9 that would not
have met the qualifying hedge accounting criteria under IAS 39.
IFRS 15, 'Revenue from contracts with customers'
The Group has adopted this new standard from 1 January 2018,
applying the modified retrospective approach, which results in the
cumulative effect of initially applying this standard being an
adjustment to the opening balance of retained earnings as at 1
January 2018.
The new standard is based on the principle that revenue is
recognised when control of a good or service transfers to a
customer. Due to the nature of the Group's business activities and
service contracts, the change in standard does not impact the
amount and/or timing of revenue recognition from servicing our
customers. The Group's contracts are repeat service based contracts
where value is transferred to the customer over time as the
services are delivered. Therefore revenue is recognised on per item
basis for delivery of laundered textiles or in accordance with the
terms of the contract for hotels, restaurants and events. Our
customers concurrently receive and consume the benefits of this
service by the Group.
The changes impacting the Group relate to where IFRS 15 states
that an asset should be recognised for costs that relate directly
to a contract, are incremental to securing the contract and if
management expects to recover those costs. The asset should then be
amortised as the services to which the asset relates are
transferred to the customer. The Group has identified an element of
employee sales commissions as specifically relating directly to a
contract and therefore meeting this requirement. Such costs were an
estimated GBP1.3 million in the year to 31 December 2017. Applying
this change to commissions paid historically by the Group resulted
in GBP1.1 million of costs incurred to fulfil a contract being
capitalised and included in Trade and Other Receivables on the
Balance Sheet at 1 January 2018.. These costs will be amortised
over the average contract life. A deferred tax liability of GBP0.2
million was also recognised, resulting in a net adjustment to
retained earnings of GBP0.9 million.
The new standard also addresses consideration paid to customers.
A reduction in revenue is to be recognised either when the Group
recognises revenue for the services provided or when the Group pays
or promises to pay the consideration. Where costs have been
identified as meeting this definition, the reduction in revenue is
deemed to be whichever is the later of the above. Where revenue was
reduced due to such payments under previous accounting policies,
under IFRS 15 the reduction in revenue is to be deferred through
recognition of an asset and amortisation of this asset over the
average contract life. This has resulted in a GBP0.1 million credit
to opening retained earnings at 1 January 2018 and a corresponding
increase in Trade and Other Receivables on the Balance Sheet.
19 ACCOUNTING POLICIES (continued)
The impact of the adoption of IFRS 15 on the Group's opening
Balance Sheet is as follows:
As at As at
31 December IFRS 15 1 January
2017 adjustment 2018
GBPm GBPm GBPm
Non-current assets
Trade and other receivables 0.3 0.5 0.8
Current assets
Trade and other receivables 47.2 0.7 47.9
Non-current liabilities
Deferred income tax liabilities 9.5 0.2 9.7
NET ASSETS 167.6 1.0 168.6
-------------------------------------- ------------ ------------ ----------
Capital and reserves attributable to
the Company's Shareholders
Retained earnings 113.7 1.0 114.7
-------------------------------------- ------------ ------------ ----------
Total equity 167.6 1.0 168.6
-------------------------------------- ------------ ------------ ----------
The impact of the adoption of IFRS 15 on the Group's retained
earnings as at 1 January 2018 is as follows:
GBPm
As at 31 December 2017 113.7
Recognition of asset for costs to fulfil
a contract - Employee sales commissions 1.1
Recognition of asset for costs to fulfil
a contract - Consideration paid to customers 0.1
Increase in deferred tax liabilities (0.2)
Adjustment to retained earnings from adoption
of IFRS 15 1.0
----------------------------------------------- ------
As at 1 January 2018 114.7
----------------------------------------------- ------
(d) Standards and amendments to standards effective after
2018
IFRS 16, 'Leases'
This standard is mandatory for financial years commencing on or
after 1 January 2019. It will result in almost all leases being
recognised on the Balance Sheet as, from a lessee perspective, the
distinction between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased item) and a
financial liability to pay rentals are recognised. The only
exceptions are short-term and low-value leases. The accounting for
lessors will not significantly change.
The Group currently leases both properties and vehicles under a
series of operating lease contracts which will be impacted by the
new standard. These types of leases can no longer be recognised as
operating leases and will need to be brought onto the Group's
Balance Sheet from the date of adoption of the new standard. The
Group will elect to apply the following practical expedients:
-- In determining whether existing contracts meet the definition
of a lease, the Group will not reassess those contracts previously
identified as leases and will not apply the standard to those
contracts not previously identified as leases.
-- Leases of less than 12 months and leases with less than 12
months remaining as at the date of adoption of the new standard
will not be within the scope of IFRS 16.
-- Leases for which the asset is of low value, for example IT
equipment, will not be within the scope of IFRS 16.
The Group will elect to apply this standard retrospectively with
the cumulative effect of initially applying this standard as an
adjustment to the opening balance of retained earnings as at 1
January 2019. As a consequence of this, there is likely to be a
material impact on the Balance Sheet with a lease liability and a
corresponding right of use asset to be recognised on the Balance
Sheet. There is anticipated to be a limited, if any, impact on the
net assets of the Group on the date of adoption. Based on the
current definition of adjusted operating profit, there is likely to
be an increase in the Group's adjusted operating profit as
operating lease costs are replaced by a lower depreciation charge.
There will also be an additional interest charge, however, there
will be no material effect on the overall Income Statement. The
Group continues to perform work to quantify the impact of the new
standard. The changes will not impact on the cash flow of the
Group.
(e) Critical accounting estimates and assumptions
The preparation of the condensed consolidated interim financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
Actual results may differ from these estimates.
20 PRINCIPAL RISKS AND UNCERTAINTIES
The Group operates a structured risk management process, which
identifies and evaluates risks and uncertainties and reviews
mitigation activity. The Group set out in its 2017 Annual Report
and Accounts the principal risks and uncertainties that could
impact its performance. These remain unchanged since the Annual
Report and Accounts was published and are summarised below:
Financial Risks Operational Risks Regulatory Risk
Economy Failure of Strategy Health and Safety
Cost Inflation Customers Compliance and Fraud
Interest Rate Fluctuations Competition
Liquidity Risk Retention and Motivation
Taxation of Employees
Loss of a Processing Facility
Information Systems and
Technology
These risks and uncertainties do not comprise all of the risks
that the Group may face and are not listed in any order of
priority. Additional risks and uncertainties not presently known to
the Board, or deemed to be less material may also have an adverse
effect on the Group. These include risks resulting from the UK's
decision to leave the EU which could adversely affect the economic
and political environment as well as affecting financial risks such
as liquidity and credit. The Board views the potential impact of
Brexit as an integral part of its principal risks rather than a
stand-alone risk. However, there is still significant uncertainty
about the withdrawal process, its timeframe, and the outcome of
negotiations about future arrangements between the UK and the EU,
and the period for which existing EU laws for member states will
continue to apply to the UK. Therefore, although the risks related
to Brexit have been discussed by the Board, it remains too early to
properly understand the impact on the business whilst negotiations
continue to take place. The Board will continue to assess the risk
to the business as the Brexit process evolves.
The main area of potential risk and uncertainty on a short-term
forward-looking basis over the remainder of the financial year
centres on the sales and profit impact from economic conditions and
customer demand, together with the impact of product cost pressures
and an associated level of customer price inflation. Other
potential risks and uncertainties around sales and/or profits
include competitor activity, energy prices, product supply and
other operational processes, product safety, business interruption,
infrastructure development, reliance on key personnel and the
regulatory environment.
Further details of the Principal Risks and Uncertainties facing
the Group were detailed on pages 18 to 21 of the 2017 Annual Report
and Accounts.
21 PUBLISHED FINANCIAL STATEMENTS
As previously announced, there is no longer a requirement to
send out half-yearly reports to all Shareholders or to advertise
the content in a national newspaper.
In order to reduce costs, the Company has taken advantage of
this reporting regime and no longer publishes half-yearly reports
for individual circulation to Shareholders. Information that would
normally be included in a half-yearly report is made available on
the Company's website at www.jsg.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UOUNRWWAKRAR
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